Eddy and Babcock: Greater fraud protections for students

Monday

Jun 5, 2017 at 11:55 PMJun 5, 2017 at 11:55 PM

By Jean Eddy and Elisabeth Babcock/Guest Columnists

The Massachusetts Joint Committee on Consumer Protection and Professional Licensure will hear testimony June 6 on a proposed Student Tuition Recovery Fund that would extend greater protection to consumers of for-profit higher education. With federal safeguards for student borrowers possibly in jeopardy, local lawmakers would be wise to follow the lead of 22 other states and enact this extra level of security for the commonwealth’s most vulnerable students.

Thousands of Massachusetts students were left high and dry when the for-profit education chains American Career Institute (ACI), Corinthian Colleges and ITT Technical Institute closed their doors. These students were forced to transfer to different schools or give up on their higher education dreams altogether. Many lost credits in the process and delayed their time to completion. Others incurred additional college costs.

For those students who borrowed student loans, the school closures left them without a degree but nonetheless in debt. Under the proposed legislation, students of closed schools could recoup their tuition and related costs through the Student Tuition Recovery Fund. All for-profit higher education institutions in Massachusetts would be required to chip into the fund.

There’s a good chance abrupt school closures like ACI, Corinthian and ITT won’t be isolated incidents moving forward. While stocks for the for-profit higher education sector have seen an upward tick under the new presidential administration, the industry as a whole has been roiled by allegations of fraud and misconduct, and recent rapid decline in enrollments could be hard to overcome. The University of Phoenix chain has seen enrollment dip by 70 percent since 2010, and DeVry University had a year-over-year decline of 23 percent, according to the Los Angeles Times.

Also important to note, is that the Student Tuition Recovery Fund would provide financial relief to students who attend schools that have not provided the services promised, but remain open. In fact, it is these students in particular who need the Fund the most as an added layer of safety should federal consumer protections not live up to expectations.

In the event of a school closure, federal student loans are usually dischargeable under longstanding regulations. If your school closes before you can complete your program of study, your federal student loans will be forgiven by the federal government unless you transfer to a different institution (and thereby still benefit from the training provided by the closed school).

The rules, though, aren’t so cut-and-dry in instances where schools don’t close, but engage in misleading, deceitful, and predatory practices. Through “borrower defense to repayment” rules, the federal government will theoretically release federal student loan borrowers from their payment obligations if a higher education institution misled them or carried out other misconduct. But numerous media outlets report that 60,000-plus borrowers who filed borrower defense claims in recent years are still waiting for their loans to be discharged, and many consumer advocates are wary of the current administration’s intentions toward student borrowers. Should borrower defense at the federal level fail to offer a path to loan forgiveness, defrauded student borrowers in Massachusetts could turn to the Student Tuition Recovery Fund as a last resort to help pay off their debt.

Over the past few years, our nonprofit organizations have each counseled hundreds of students stuck (for lack of a better word) because their school closed or failed to deliver on contractual promises. Paralyzed by the magnitude of the situation and not knowing how to seek restitution, these students find themselves in a worse off position than if they had never tried college in the first place. Any proposal that provides feasible options for students to get unstuck is sound economic and social policy. Establishing a Tuition Recovery Fund in Massachusetts would give defrauded students a financial fresh start so they can finish their education dreams – or at the very least walk away from higher education unharmed – and send a clear signal that there’s a cop on the beat looking out for their best interests.

Jean Eddy is acting president and CEO of American Student Assistance, a Boston nonprofit that works to ensure no student fails to realize the full potential of education because of finances. Elisabeth Babcock is president and CEO of EMPath, a Boston nonprofit that transforms people’s lives by helping them out of poverty, and provides other institutions with the tools to systematically do the same.

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